Dick, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Orange Corporation. With respect to this transaction:

Question

Dick, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Orange Corporation.  With respect to this transaction:

Quizplus · Accepted Answer

The basis of property transferred to a corporation by a taxpayer is generally the same as the taxpayer's adjusted basis immediately before the transfer. Since Dick is a cash basis taxpayer, his basis in the building would be the $120,000 he originally paid for it. The fair market value of the building is $125,000 ($120,000 + $5,000), so Dick has a recognized gain of $5,000 ($125,000 - $120,000).

Dick, a Cash Basis Taxpayer, Incorporates His Sole Proprietorship